Bullard slams Fed taper plan, says timing was off

WASHINGTON (MarketWatch) — The Federal Reserve mistimed its announcement of a plan to end its bond-purchase program, St. Louis Fed President James Bullard said Friday.

In a statement elaborating his dissent from the Fed policy decision issued Wednesday, Bullard noted that the central bank announced that less-accommodative policy was in store at the same time that it marked down its forecasts for 2013 growth and inflation.

Bullard weighs in on Fed decision

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Bullard’s statement came at the end of the Fed’s self-imposed communications blackout period.

Other Fed officials have issued dissent statements as soon as the blackout period is over, but Bullard’s remarks seemed more powerful, given that they came after the financial markets had a sharp negative reaction to the Fed’s decisions.

He attributed the volatility in financial markets not to Fed communication, but to perceptions of upcoming “tighter policy.” “You can communicate it one way or another way, but the markets are saying that they’re pulling up the probability we’re going to withdraw from the QE program sooner than they expected, and that’s having a big influence,” Bullard said.

The Fed would like inflation to average 2% over time. But the central bank’s favorite inflation target has fallen to 0.7% over the past 12 months.

Prior to this week’s Fed meeting, Bullard had raised a red flag about the inflation data, saying he thought the Fed might stand pat until it better understood the factors behind the trend. He stressed the issue in his dissent, saying the Fed “should have more strongly signaled its willingness to defend its inflation target of 2% in light of recent low inflation readings.”

The Fed “must defend its inflation target when inflation is below target as well as when it is above target,” the Friday statement said.

In more general terms, Bullard said he was concerned the Fed is making decisions based on calendar dates and not incoming economic data.

Some analysts say Bernanke wants to start stepping back from the bond-purchase program before his tenure ends next January. Comments from President Barack Obama have caused many Fed watchers to conclude that the chairman wants to leave his post. Also read: Obama ‘essentially fired’ Bernanke.

In his statement, Bullard offered a bit of an olive branch to his colleagues, saying that he thinks the central bank “can conduct appropriate and effective monetary policy going forward.”

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